The Federal Government has announced that it will preserve current mortgage broker remuneration structures and override Commissioner Hayne’s recommendation to abolish lender-paid commissions in favour of consumer-based fees.
The announcement has come in the midst of significant industry backlash, with economists, analysts, academics and brokers warning that the Commissioner’s recommendation – designed to protect consumers – could end up doing just the opposite: eradicating SMEs and giving more power to the big four banks.
In the lead up to the election, however, the mortgage broking industry ought not to celebrate too much, as Labor is still not shifting its stance on backing the recommendations and putting an end to trail commissions.
Ahead of the Australian Financial Review Banking & Wealth Summit – 26-27 March 2019 Mortgage Choice Chief Executive, Susan Mitchell, told us that accusations of scare mongering were “not accurate” and that the mortgage broking industry was indeed stating “rational facts”.
“Arguments that the broker channel was lending irresponsibly by administering significantly larger loans with higher LVR than other lenders are not valid.
“The data is clearly skewed by the nature of these loans. Banks tend to administer far more top-up loans for home renovations and the like; whereas loan applications coming into the broker channel are for property purchase and are inherently larger”.
Ms. Mitchell also rejects claims that brokers are doing the wrong thing by consumers. “It’s actually very hard to lend someone more than they can afford for a home loan, given today’s responsible lending guidelines. There are enough checks and balances in the system to ensure a broker does the right thing by the customer.
“Moreover, we have seen increased foot traffic to mortgage brokers and today six out of ten consumers choose to secure a home loan with the help of a mortgage broker, which parallels with strong customer satisfaction levels that currently sit at 90 percent. I think these figures speak for themselves as to who has the customer’s back”.
Ms. Mitchell believes that backing Hayne’s recommendations will force many brokers out of the industry and warns that, “this could have a significant impact on competition for many years to come”.
“Every bank below NAB and ANZ will feel the effects of this. Take Macquarie Bank – 90 percent of their home loans are administered via brokers. Then of course you have non-banks and the broking firms themselves, for which this is their lifeblood. Again, we are forcing it back to the big four banks”.
ABA Chief, The Hon Anna Bligh AC, is also due to address the Summit and gave a more optimistic account of the Royal Commission recommendations in general.
“If Australian banks are to take the recommendations of the Royal Commission and implement them in a way that puts them in a world leading position – on customer, innovation, digital services – there’s a chance here to effectively use the crisis of the last two years to transform banking; its relationship with its customer and the public; and become a world leading example of financial services at their best”, said Ms. Bligh.
“Real change is never easy but Australian banks proved their capability when they pulled through the global financial crisis. I believe they can draw on that same capability to deliver on this challenge.
“Just as the financial systems inquiry established an unbeatable framework to make Australian banks unquestionably strong, the Royal Commission has done the same – providing a framework to make Australian banks unquestionably good.
“There’s nothing like a Royal Commission to bring home some hard lessons in the most searing of ways. In my view Commissioner Hayne has delivered a very well balanced and thoughtful set of recommendations if they are implemented in both the letter and spirit that they were written they will be a force for good”.
The Australian Financial Review Banking & Wealth Summit will be held on 26-27 March 2019. The event will host more than 300 of Australia’s top policy makers, regulators, financial institutions, analysts and industry players.